The troubles with hackers and cheaters could be a big problem for Kabam, a big social and mobile game publisher. The company reported $360 million in revenue in 2013 and is often mentioned as a possible initial public offering candidate.

Kabam’s version of the The Hobbit was one of the top ten highest-grossing apps on Apple’s iTunes App Store in 2013.

The concern about the fraud is also acute because it affects players who buy virtual goods in the games with real money. Such players, known as “whales,” are important because only about 10 percent of players (or less) will bother to buy something in the free-to-play games.

“This is to assure you that we are dealing with this issue as a top priority,” Kabam said.

“We have an investigation under way and we are working with both Apple and Google to pursue offenders and end this behavior. This type of fraudulent activity is very serious, and we will take swift and strict action against the players involved.

“We are sending you this message so that you are aware that we are taking the appropriate measures to address these concerns and maintain the integrity of your gaming experience.”

Kabam added, “Your investment in our game allows us to constantly innovate and continue providing for the best game play for you now and in the future.”

In a statement, Kabam spokesperson Steve Swasey said, “We are dealing swiftly to protect the integrity of the game.”

I have been playing The Hobbit for more than a year and noticed that Kabam has been giving out more rewards in recent weeks to thank players for being loyal.

The Hobbit and Dragons of Atlantis are strategy games in which players can build a city, train armies, join clans, and then wage war against rival clans.

The latest problem that has stirred a player revolt has been brewing for a few weeks, starting with the discovery of a security breach. That made big spenders in the game nervous, according to players.

Multiple players told me anonymously that they noticed that some “beta players” appeared to have unlimited “rubies,” or virtual currency, to buy items in Dragons of Atlantis. The presence of such players skews the tournaments inside the game. Those tournaments are played by legitimate players who spend a lot of money in the game.

When legitimate players try to compete against such players, they lose. That motivates the legitimate players to spend more real money in the games.

“The unfortunate part is that, due to the structure of the game, many players won’t realize the hackers and beta players are already at a higher level and have spent money to get there, and we want to warn them,” said John Albaugh, a member of Killer Instinct, a high-ranking alliance of players on the Nehalem server in Dragons of Atlantis.

That led some players to accuse Kabam itself of condoning or creating the fraud. Those players complained to Apple and received refunds for their purchases, while Google refunded only the last 10 purchases and told players to ask for refunds directly from Kabam if they wanted more money back.

More than a week ago, Kabam held a Tournament of Power in Dragons of Atlantis. In that tournament, players noticed that a hacker went from just 2,000 power in the game to more than 14 million in power. That player also posted on the Line mobile messaging network on how to obtain troops in a fraudulent way. Members reported the player to Kabam, but the company took no action during the six-hour tournament. The members captured evidence of how the hacker was selling cheats, but they noted that Kabam did not remove the hacker player. The players said they saw similar evidence with “beta players,” who were reportedly given currency.

Kabam hasn’t yet specifically comment on those allegations. This is not the first time that Kabam has faced a player revolt. Back in September, Kabam made a policy change in the social game Dragons of Atlantis web game that affected some players, triggering a protest. Kabam said some players were using a third-party tool to gain unfair advantages over competing players.

Peter Molyneux, a veteran game maker and creator of Godus at 22cans, said he loves games like The Hobbit. But he also has been a heavy critic of free-to-play monetization techniques.

“I don’t see that the free-to-play loops that we have now are going to last much longer,” he said in a recent interview with GamesBeat.

“They’re going to be legislated against. A lot of consumers are going to rebel against them. Core gamers already rebel against free to play.”